Bitcoin mining company TeraWulf Inc. (WULF) saw its stock price decline by over 7%, reaching $5.84. This drop came after the firm announced a $425 million offering of 2.75% convertible senior notes, which are due in 2030.
VanEck’s head of digital assets research, Matthew Sigel, highlighted that on October 24, WULF was the worst-performing stock in the VanEck Digital Transformation ETF (DAPP). Sigel commented, “Instead of Announcing an AI/HPC Customer, Which Investors Are Eagerly Awaiting, They Announced a Dilutive Convertible.”
Despite this decline, TeraWulf’s shares had surged by an impressive 71% from October 9 to October 22, indicating the recent fall could be a natural retracement.
Market Resistance and Predictions
Daniel Marques, a manager at Ernst & Young, pointed out on X that the $6 price range is acting as a “heavy resistance” level. He observed that strength indicators suggest it could be difficult for the stock to surpass this area in the short term. Marques predicted, “I expect a 20-30% cool off before the next move to $7-9. All part of the long-term game.”
Expansion Plans and Repurchase Strategy
TeraWulf plans to allocate the funds from this offering to several strategic initiatives. The company has set aside $115 million for repurchasing common stock and an additional $51 million to finance capped call transactions aimed at reducing potential dilution from the convertible notes. The remaining capital will be used for general corporate purposes, which may include working capital, acquisitions, and expanding data center infrastructure for high-performance computing (HPC) activities.
The convertible notes can be exchanged for cash, common stock, or a combination of both, based on a conversion rate of 117.9245 shares per $1,000 principal amount. This translates to an initial conversion price of around $8.48 per share, representing a 32.5% premium over the closing price on October 23.
Capped Call Transactions and Stock Repurchase
Additionally, TeraWulf entered into capped call transactions with a cap price of $12.80 per share—double the closing price on October 23. This derivative strategy aims to minimize potential dilution and limit cash payments exceeding the principal amount of the notes in case of conversion.
Simultaneously, TeraWulf launched a stock repurchase program, acquiring approximately 17.97 million shares for $115 million at the October 23 closing price of $6.40 per share. According to the company’s statement, this move aims to enhance shareholder value by reducing the number of outstanding shares.
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